Markets looking to Budget measures

Domestic stock markets shrugged off weak global cues, rising Omicron cases and sluggish macroeconomic data, and continued their weekly winning momentum for a fourth successive week. However, the continued FII sales supported the indices. The BSE Sensex gained 1,478.38 points (2.47 percent) to end at 61,223.03, while the NSE Nifty added 443.1 points (2.48 percent) to close at 18,255.8. The BSE Midcap and Smallcap indices also gained 2.4 percent and 3 percent. During the week ended, the key benchmark indices crossed major hurdles as the Nifty reclaimed the 18,000-mark and Sensex crossed the 61,000-level.

FIIs sold equities worth of Rs4,002.94 crore and DIIs bought equities worth of Rs3,629.03 crore. Considering the momentum in mid and small caps, the focus will likely be stock-specific ahead of the budget. The CPI gained on account of rising in food prices while the WPI tickled down to 13.5 per cent on account of correction in fuel and power prices. The rise in retail inflation indicates a rate hike probability, however, analysts feel that the equity market has already discounted this factor. Ahead of the Union Budget, some pockets in the market are gaining momentum on expectations of sops in the Budget. The market is also looking for support measures for sectors such as housing, autos, and auto ancillaries, PLI-related measures in multiple sectors.

Observers indicate that the markets will run based on optimism till the Budget, but post that, a lot will depend on the assembly elections outcome. Results in Uttar Pradesh may signal change in the economic policies of the Central government. Union Budget could see the Finance Minister announcing plans to ignite India's capex cycle while, at the same time, laying out the roadmap for fiscal consolidation. The pre-budget rally being seen in several sectors is likely to expand to other segments in the coming fortnight.

The week ended also saw a positive start to the Q3 earnings season. Asian Paints, Bajaj Finserv, Bajaj Finance, Baja Auto, Biocon, Havells, HDFC, Hindustan Unilever, ICICI Prudential Life Insurance, JSW Energy, JSW Steel, RIL, Tata Elxsi, Trident, Ultratech Cement and others will announce their Q3 earnings. Analysts say that despite good results there would not be valuation expansion and maybe the PEs will come down to more realistic levels in coming days. Coming week will kick start the IPO Season 2022 with the IPO of AGS Transact Technologies on January 19. The company will raise Rs 680 crore by selling shares in the range of Rs 166-175 apiece.

Quote of the week: The four most dangerous words in investing are, it is different this time— Sir John Templeton

Follow market trends and history. Don't speculate that this particular time will be any different. For example, a major key to investing in a specific-stock or mutual fund is its performance over five years.

F&O / SECTOR WATCH

On the back of Q3 earnings season, derivatives segment witnessed robust trading volumes. Maximum Call Open Interest was seen at 19,000 strike, followed by 18,200 and 18,800 strikes. Call writing was seen at 19,000 strike, then at 18,200 and 18,800 strikes with unwinding at 17,900 and 17,600 strikes. Maximum Put OI was seen at 18,200 strike, followed by 18,000 and 17,900 strikes. The highest Put writing was seen at 18,200 strike then 18,000 and 17,900 strikes. The level of 18,000 is expected to act as crucial support. After the sharp up move of almost 1,700 points in less than a month, consolidation cannot be ruled out. In the last month's rally, banking has been one of the biggest contributors. The Bank Nifty has gained 11.4 percent. If the momentum sustains and earnings meet expectations, then 40,000 can't be ruled out in the coming weeks. On the downside, 38,000 is an immediate support level and 37,500-37,000 the next support level. Weekend results of HDFC Bank and other banking heavyweights earnings lined up in coming days may trigger sharp stock-specific actions in some banks. Implied Volatility (IV) of Calls closed at 16.61 per cent, while that for Put options closed at 17.85 per cent. The Nifty VIX for the week closed at 16.71 per cent. PCR of OI for the week closed at 1.67. One of the sectors that showed resilience and good upside has been metal sector.

Despite GoI not imposing anti-dumping duties on some of the steel products, breakout volumes have been seen in some steel counters. Use declines to buy Tata Steel, JSW Steel and SAIL. Ahead of the IPO of LIC, market players expect PSU theme to play out in coming weeks. Looking good are ITCTC, BHEL, BEL and SAIL. On the back of the results of the top three IT companies, TCS, Infosys and Wipro the IT sectoral index gained two per cent. TCS reported results in line with market estimates, WIPRO recorded a muted Q3 result, whereas Infosys results beat the market expectations. Infosys also revised its forward revenue guidance upward to 19.5-20.0 per cent. Wipro got punished, while TCS and Infosys gained more than two per cent. At the start of the coming week the market will react to HCL Technologies and HDFC Bank's earnings reported over the weekend.

Every quarterly season of earnings, there are opportunities to trade, but the results create movements in the stock prices. Use options to both hedge and 'play' on the outcome of results. Stock futures looking good BEL, Ramco Cement, Tata Steel, United Spirits and Voltas. Stock futures looking weak are Marico, MGL and STAR.

(The author is a stock market expert. He is former vice chairman of AP Planning Board)